The European Union has offered to assist Iran in acquiring a light-water nuclear reactor in order to persuade Iran to curb its atomic ambitions. However, President Mahmoud Ahmadinejad said Wednesday Iran would reject the European Union deal.

"They say that they want to give us incentives," Ahmadinejad told a rally in the town of Arak that was carried live on state-run television. "They think that they can take away our gold and give us some nuts and chocolate in exchange. There is no need to give us incentives."

A light-water research reactor is considered less of a proliferation risk than a heavy-water reactor, which can produce large amounts of plutonium. Iran is currently building a heavy-water reactor.

Diplomacy will take place i n private

Germany hosted a meeting on the Iran conflict earlier this year

State Department spokesman Sean McCormack said the United States was working very closely with the so-called EU-3 (Britain, Germany and France) in developing a package to offer Iran.

"We are making progress in the consultations," he told reporters in Washington on Tuesday.

"What this package would do is provide the Iranian regime a choice," McCormack said. "We present them with a crossroads. So they can choose to continue down the pathway of intransigence, of non-cooperation, of obfuscation, which will lead to the increased isolation of the Iranian people, or they can choose a pathway of cooperation."

However, he would not name any details of the offer.

"I'm going to let the diplomacy take place in private," McCormack said.

US "pleased" about EU efforts

A Western diplomat told AFP news service the United States could accept the idea of an international consortium providing advanced, proliferation-resistant light-water reactor assistance to Iran.

"But only in the context of an agreement in which Iran has verifiably agreed not to pursue uranium enrichment, including research, for the foreseeable future," the diplomat said.

Iranian MPs inspect parts of the Isfahan nuclear plant

He said Washington was pleased that the EU had "for the first time committed itself to specific United Nations Security Council sanctions on Iran if Iran fails to comply."

The five permanent UN Security Council members plus Germany were expected to meet this Friday in London to review the offer. But this meeting will likely be postponed until next week.

"The package has not been approved," Nicholas Burns, the US Under Secretary of State for Political Affairs, said late Tuesday in Washington. "It is under development."

Burns said the meeting would "probably" take place next week in London. He said the talks on new incentives were progressing.

Offering Iran a light-water reactor needs US backing, as European companies involved in this technology would not want to endanger their business with the United States, diplomats said.

A package everyo n e ca n live with

Washington and the EU-3 favor a Security Council resolution that would require compliance. This could open the door to sanctions, and even military action, if Iran continues to enrich uranium.

However, Russia and China oppose such a resolution, saying they fear an escalation of the crisis. This leaves the EU powers now trying to find a negotiation package acceptable to Russia and China.

"The package involves Iran giving up industrial-scale enrichment and agreeing to have it done in Russia," a diplomat close to the Vienna-based UN nuclear watchdog International Atomic Energy Agency said.

The Europeans, backed by the United States, had offered benefits including help in obtaining a light-water reactor last August, but Iran rejected this offer.

Iran would then get trade benefits -- the Europeans have already promised to help Tehran get into the World Trade Organization.